Ask the Experts: Do your homework on reverse mortgages

Our three new "Ask the Experts" writers have been busily answering financial questions this month from online readers.

Here’s a sample of their advice on personal finance, wills/estates and investing.

To see more questions or to get advice from our other financial experts on taxes, banking and investment clubs, go to: www.sacbee.com/ask.


Pamela Christensen, Certified financial planner

I expect to retire in about four years and will have a small Sacramento County retirement. We also have about $150,000 in CDs to live on. My parents got a reverse mortgage a couple years ago for the extra cash to live on and to have no mortgage payment. It seems to be working for them and we are considering it as well. Is this type of mortgage safe?

As with most financial planning, these issues are very individual. I like reverse mortgages in some situations, although it’s always wise to get lots of counsel on your particular circumstances and the ramifications. For instance, do you have heirs in line to inherit your house? Do they want or need it? How much equity do you have in the home?

Do your homework and learn as much as you can. Start by going to the federal Department of Housing and Urban Development Web site (www.hud.gov) and search for "Reverse Mortgages." There’s also information on the state Department of Real Estate Web site (www.dre. ca.gov). Click on "Consumers", then "Home Buyers/Borrowers," then "DRE Publications and Resources." Talk to your estate planning attorney and other financial professionals to get their opinions. Talk with family and friends only if you know they are well educated in reverse mortgages.


Gina Lera Estate planning attorney

My brother passed away, with no assets other than his car, which has a salvaged pink slip. He has credit card debt of about $15,000. Do I have to sell the car to pay off his debt? He’d said he wanted my son to have the car if anything ever happened to him. A couple credit card companies have already cleared him of the debt he owed. He lived with me, has no children and no other assets. What do I need to do?

I am sorry about your loss. Since your brother died without a will, his assets will pass as provided by the laws of the state where he resided at the time of death. Assuming he died in California and was not survived by a wife, children or grandchildren, his estate would pass to his parents (or, if both parents are deceased, to his siblings in equal shares).

Because the estate’s value is less than $100,000, the heir(s) can assume the vehicle’s title by making an appointment with the DMV, completing a "small estate affidavit" form and providing a copy of the death certificate.

The heir can then assign the car to your son without gift tax consequences, assuming the car’s value is less than $13,000. Your brother’s statements about wanting your son to have the car after his death have no effect, since California does not recognize oral wills.

Be careful in this process. The credit card company can collect up to one year following your brother’s death. You indicated some debts were voluntarily discharged by several card companies, which is common in more modest estates. Be sure to get this confirmed in writing, to ensure you are not taking on additional problems. Even after the car is transferred to your son, the heirs are still liable for any debt up to the value of the car.


Cameron I. Beck, Investment adviser

I’ve read that people with defined pension plans should consider them as the short-term or fixed part of their asset mix, in terms of an overall retirement portfolio.

For instance, if 60 percent of your retirement income was in a defined pension, the other 40 percent could be placed in more aggressive investments to round out the portfolio.

Because of the recent market meltdown where investments may have shrunk 40 percent or more, is it still wise to think that way? Or should the rest of the portfolio be invested totally separate from the pension? I guess it goes back to how much risk I should be willing to accept.

In this day and age, you are very fortunate to have a defined benefit pension plan. Many employers find them too costly and are switching to employee-directed plans or defined contribution plans. At retirement, most of those fortunate enough to have a traditional defined benefit pension plan can expect to receive a fixed-income stream for their lifetime. It can be considered a fixed-income part of an asset mix. Unlike stocks, which fluctuate in value, pension plan distributions usually remain steady.

Whether your income comes from a pension plan run by your employer or from interest-bearing investments like CDs, it is important to practice diversification, which includes both growth and fixed-interest investments. Diversification, if practiced wisely, can lead to a prosperous retirement regardless of where your income comes from.